Neuroergonomic Analysis of Dynamic Vs. Flat Rate Pricing on Consumers

Hongjun Ye; Siddharth Bhatt; Hasan Ayaz; Prashant Srivastava; Rajneesh Suri

doi:10.3389/conf.fnhum.2018.227.00051

In 1991 when Coca-Cola experimented with raising prices on their vending machines during hot days, consumers retaliated and Coca-Cola abandoned its project. However, with advent in technology, today’s consumers are getting comfortable with prices fluctuating with demand (e.g., Uber during a late-night “surge”; airline and hotel prices) or context (matinee vs. regular pricing for theater tickets), several times over the course of a single day. A deployment of this type of dynamic pricing mechanism is advantageous to firms as they harvest consumer surplus more efficiently. Also consumers are now more aware that prices may fluctuate and are becoming more accepting of such dynamic prices for products that they buy periodically. The question is whether consumers will be more accepting of price changes if they happened more frequently for products that they need and have less competing options for like utilities. Trials of time-of use rates, demand charges and time varying pricing are now playing a important role in the transformation of the electric power sector but little is known about consumers’ response to such pricing approaches and if framing of dynamic prices may indeed make consumers more accepting of such fluctuations. Understanding the impact of such a new pricing approach on how consumers perceive dynamic prices and how utilities can effectively communicate them to consumers is critical. In this study we approach our understanding of dynamic prices for utilities using both a standard assessment performed via self-reported measures that incorporates methods such as surveys, focus groups, and phone and online interviews are the first step. These methods though require large sample sizes and respondents often find it harder to articulate their response to aspects of their behavior to which there is no prior and easy reference. Despite the biases, these methods provide us subjective measurements that can be further triangulated by the use on neuroimaging tools. With the rise of non-invasive and non-clinical functional neuroimaging, an opportunity to access a more direct and objective measurement of the consumer’s response to dynamic prices and different ways to communicate such prices effectively to consumers is now available. Neuroimaging tools, such as functional magnetic resonance imaging (fMRI) and Electroencephalogram (EEG), have been utilized in initial neuromarketing studies (Ariely & Berns, 2010), however various limiting factors such as high operational cost, restrictions on the participant during data collection, and the speed and ease of sensor setup limit use of these in large scale deployment as well as in actual field conditions. Functional near infrared spectroscopy (fNIRS) as a portable and wearable neuroimaging technique that utilizes near infrared light to measure oxygenation changes in outer cortex. Latest generation of optical brain imaging utilizes wireless sensor pads to enable measurement of brain activity in non-tethered and ambulatory settings (Ayaz et al., 2013). This research investigated the evaluation of dynamic pricing approach for utilities. Participants in two focus groups and a phone survey showed preference for flat rate pricing over dynamic pricing. There was greater uncertainty and perceptions of unfairness when evaluating a dynamic price. From the two versions of dynamic pricing -- real time (RTP) vs. time of use pricing-- the time of use pricing (TOU), was the preferred dynamic pricing approach. One of the reasons was that its peak and non-peak times were generally fixed (Figure 1).

Neuroergonomic Analysis of Dynamic Vs. Flat Rate Pricing on Consumers

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Neuroergonomic Analysis of Dynamic Vs. Flat Rate Pricing on Consumers

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